New York Post – Subway’s Arbitration for Minor Infractions Is Out of Control: Franchisees

The restaurant business is messy — but try telling that to Subway Restaurants, which is being accused of going after franchisees for minor infractions, like smudged glass, in an effort to put them out of business.

Mom-and-pop franchisees of the nation’s largest fast-food chain claim they’re under attack from an army of lawyers and store inspectors who are pressuring them to shutter or sell their stores, according to sources and court filings.

At the heart of the controversy is a 700-page-plus operations manual, which dictates everything from what oven temperatures to use to how to display vegetables.

“No one can comply with that,” Ohio lawyer Mark Shearer said of the manual. “[Celeb chef] Gordon Ramsay can’t comply with this.”

The Milford, Conn., company uses the manual to ding franchisees during monthly inspections for violations that can then put them in jeopardy of breaching their licensing agreements, according to sources and court filings.

In the case of Shearer’s client, Jack El Turk, who runs a Subway in Brook Park, Ohio, the company’s inspections led to complaints of “smudge marks on the glass in the dining room” and “coats and purses in the backroom,” according to court papers filed by Shearer.

In some cases, dinged stores are sold to Subway’s own development agents — the very same people who direct the monthly inspections, according to sources and court filings.

“My clients were targeted because sometimes they liked the store’s revenue and wanted the store for themselves,” Shearer told The Post, echoing his statements in a recent court filing about an Ohio franchisee who was allegedly forced out by a development agent “attempting to acquire restaurants in the territory.”

A Subway spokeswoman said the monthly inspections “are ensuring the high standards demanded by us and expected by guests are met.”

“If a restaurant is not meeting the requirements, the brand first makes every effort to work with the franchise owner to fix the issues,” she said.

But the accusations of an uneven playing field come at a time when the company known for the $5 footlong is flooding franchisees with legal actions.

The company took 955 actions against franchisees in 2017 and 718 last year. Most of the actions were through arbitration, which means the reasons behind them were not disclosed.

Based on the numbers alone, Subway is involved in hundreds more disputes with franchisees than McDonald’s, Dunkin’ donuts, Burger King, Pizza Hut and Wendy’s combined, according to restaurant consultant John Gordon of Pacific Management Consulting Group.

Subway initiated 702 arbitration actions against US franchisees in 2017, Gordon said, compared to one by McDonald’s, two by Dunkin’ and none by Pizza Hut, Burger King or Wendy’s.

“It stands out like a sore thumb,” Gordon said of Subway’s arbitration record.

Critics say the legal actions are tied to the company’s plan to slim down the chain amid sagging sales as competition for healthy and fresh food options grows.

Last year, Subway lost a net 1,108 stores, or 4.3% of total locations. McDonald’s, by contrast, lost a net 122 stores in 2018, or just 1% of its US base, according to regulatory filings.